MKGAF Merck KGAA (PK)

Merck KGaA (MKGAF) reported second quarter 2012 earnings per American Depository Receipt (ADR) of $2.47, well above the year-ago earnings of $2.30 per ADR.

Revenues for the reported quarter slipped 0.3% year over year to $3,665.3 million, primarily due to exchange rate fluctuation. However, in Euro terms, revenues climbed 11.6% yearly, riding on sales growth at the Merck Serono and Performance Materials divisions.

Quarterly Details

The company operates under four divisions: Merck Serono, Consumer Health Care, Merck Millipore and Performance Materials.

[All growth rates discussed below are in terms of Euro.]

Merck Serono’s revenues increased 11% during the quarter, driven by strong performance of Fertility and Endocrinology businesses and dollar appreciation against other currencies. Rebif (up 9.6%) and Erbitux (up 7.1%) also contributed to the segment’s growth.

The Consumer Health Care division’s revenues increased 2.9%, primarily due to increase in sales along with favorable changes in foreign exchange rates.

Merck Millipore division’s revenue went up 11% from the year-ago period, driven by robust growth in its Lab Solutions and Process Solutions business segments. Merck Millipore comprises three business wings – Bioscience, Lab Solutions and Process Solutions.

The Performance Materials division’s revenues jumped 14% during the quarter due to strong demand for larger televisions in the Liquid Crystals segment. However, sales continued to decline in the Pigments & Cosmetics segment due to a weak economic environment in the EU. The Performance Materials division consists of the Liquid Crystals and Pigments & Cosmetics businesses.

Revised Outlook for 2012

For 2012, Merck KGaA now expects revenues to be approximately €10.7 billion, slightly up from the earlier guidance of €10.5 billion.

Our Recommendation

Merck KGaA currently retains a Zacks #4 Rank (short-term ‘Sell’ rating).

Merck KGAA (PK) (USOTC:MKGAF)
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